Crozer-Keystone demands $21.8M from buyer

MEDIA COURTHOUSE >> Attorney Rocco Imperatrice III filed a $21.8 million judgment Friday on behalf of the Crozer-Keystone Health System and Crozer-Keystone Community Foundation under the terms of a June settlement reached with the for-profit corporation that took over the health system last year.

Prospect Medical Holdings Inc. and Prospect Crozer LLC agreed to a $300 million asset acquisition with Crozer in January 2016 that included a $52.9 cash payment as an estimated purchase price due at closing July 1, 2016, according to prior court filings. As part of the sale, CKHS consolidated two foundations into CKCF, which would be the ultimate recipient of the proceeds.

Former Crozer Board Chairman Bruce Fisher said at a June 21 hearing before Delaware County Common Pleas Court Judge Barry C. Dozer that Prospect paid just $20 million at closing due to a cash- shortage issue. He said the Crozer board agreed to accept that amount at that time with the expectation that the remainder would be paid within 90 days, but that never happened.

Prospect did pay an additional $12.9 million approximately 130 days after closing, but Prospect attorney Thomas Musi argued that was a voluntary payment based on further calculations performed by Prospect.

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Prospect was expected to present its case on the matter June 22, but the parties instead presented a settlement agreement to the judge indicating an arbitrator would deduce what, if anything, Prospect still owed to CKHS and the foundation.

The agreement required Prospect to place $21,535,463 into escrow within 45 days of CKHS signing a letter of engagement with the arbitrator June 26. The figure represents a principal balance of $20,070,000 and a $1,465,463 interest payment.

The agreement further provided that Prospect would be in contempt of court and subject to an immediate judgment of the full $21.5 million plus interest at a rate of 6 percent from June 21 to the date of judgment, as well as attorney’s fees, if it failed to fund the escrow account under the terms provided.

Imperatrice said Prospect did not complete the necessary paperwork to even open the account and did not pay anything into the fund by the deadline of 5 p.m. on Aug. 10.

“As a result of their failure to do that, they are now responsible for an additional $180,543.88 in interest, together with attorney’s fees,” he said. “The total judgment entered against them today is $21,816,016.88.”

Imperatrice said Prospect filed two emergency petitions with visiting Philadelphia Common Pleas Court Judge John L. Braxton last week relating to the settlement, both of which were denied.

“We will comply with the judge’s ruling,” Prospect said in a statement Friday. “It is important to note that the issue of whether the funds are actually owed or not will be determined by a separate arbitration.”

Imperatrice agreed the arbitration is a separate proceeding, but added that no matter what, Prospect is now obligated to pay counsel fees and interest, and is still subject to contempt of court.

“This judgment only deals with Prospect’s failure to pay all of the agreed upon estimated purchase price due at closing last July 1,” he said. “The arbitration as to the final purchase price is still ongoing and will only determine what amount Prospect may owe over and above the estimated purchase price.”

The June 22 agreement stipulated, however, that if the arbitrator finds CKHS has been paid too much already, the entirety of the escrow would be returned to Prospect along with the balance of the overpayment coming from CKHS.

The judgment entered Friday effectively finalizes Crozer’s lawsuit against Prospect, according to Imperatrice. If the judgment is not paid, he said, the plaintiffs can proceed to “execution,” which allows for the freezing of assets and other actions.

Imperatrice said Crozer would commence execution proceedings as soon as possible, which he estimated could begin in about 30 days.

“We will also begin to serve discovery on both Prospect entities seeking to uncover whatever assets (they) may have available to allow execution on those,” he said.

Crozer is also separately disputing $3.5 million it claims it is owed for the Cassatt Insurance Company, and is seeking removal as guarantor on two leases for properties in Broomall and Springfield that are now used by Prospect, Imperatrice said. A hearing on those issues is set for Oct. 5 before Judge Braxton.